Author : Michael Gruley - Subject : Finance
If you’re the average American senior, you’ve spent most of your life making mortgage payments so that you would not have house payments when you decided to retire. However, now you’re retired, and expenses such as property taxes, home maintenance, medical bills, auto repairs, etc. are straining your fixed budget. Consequently, you are forced to sell the home for which you worked so long and hard to get the funds you need to make ends meet.
As the population of senior citizens continues to grow along with property values in the United States, more and more seniors are finding that they are "house-rich" and "cash-poor." Tapping into the "bank account" of equity in their homes is often a difficult, if not impossible, task for many fixed income seniors.
Today, there is a mortgage product rapidly growing in popularity among American seniors. It is called a reverse mortgage. A reverse mortgage is a loan where the borrower receives money from the lender, instead of paying money to the lender.
Previously, when older homeowners wanted to obtain cash from their homes, they had two options: sell the home and move to a less desirable area, or borrow against it and immediately incur new monthly payments. With a reverse mortgage, seniors can use the equity from their home in any way they wish, and never have to pay a monthly payment.
Homeowners who are at least 62 years of age are eligible for a reverse mortgage. Income and credit history are not considered, and do not determine eligibility or ineligibility. There are no credit qualifications for a reverse mortgage.
The equity can be distributed in several ways: in a lump sum, in a line of credit, in monthly disbursements, or any combination of the above options. No restrictions are placed on the use of the funds. The borrowed money is tax-free (because it’s not income, it’s a loan), and it does not affect the borrower’s eligibility for Social Security or Medicare benefits. (Medicaid, food stamps, or SSI may or may not be affected depending how the money is disbursed).
The amount of money a borrower may receive is based on his or her age, the property value, and the current interest rate. The older the homeowner, the greater the value of the home, and the lower the interest rate, the greater the total amount that can be borrowed.
A reverse mortgage can be obtained only on the property that is the
borrower’s primary residence. In addition, eligible homes need to be single-family, one to four unit dwellings. Condominiums need special HUD approval, but most units are already qualified. Mobile homes are not eligible at this time.
Eligible properties need to be in good condition and have very little or no mortgage balance on them. If repairs are required, they can usually be paid for out of the loan proceeds if they are not too expensive. In the same way, any outstanding liens against the property can be satisfied out of the loan proceeds at closing.
Reverse mortgages are made possible through the Federal Housing Authority (FHA), as well as the Federal National Mortgage Association (Fannie Mae), and because of this, they are considered very safe for consumers. Still, each applicant is required to attend a free, confidential counseling session with a local independent counseling agency approved by the FHA.
Because a reverse mortgage is not for everyone, these counseling agencies help borrowers understand their options, and assist them in determining whether a reverse mortgage is best for them. Relatives, friends, or other personal advisors are all welcome to attend the counseling.
A reverse mortgage has no monthly payments, and repayment is not required as long as the borrower owns and lives in the home. In addition, the FHA and Fannie Mae guarantee that the borrower will never owe more than the value of the home.
If you find yourself in a similar circumstance, you may want to learn more about a reverse mortgage. It may give you peace of mind.
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